SEC Issues Final Rules on Proxy Voting Advice

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On July 22, 2020, the U.S. Securities and Exchange Commission met and adopted final rules, Exemptions from the Proxy Rules for Proxy Voting Advice, SEC. Rel. 34-89732, in a 3-1 vote. These final rules will become effective 60 days after publication in the Federal Register. Of course, that presumes that a lawsuit isn’t filed against the SEC and these final rules by an interested party (such as ISS which filed such a lawsuit with the SEC’s earlier guidance affecting proxy voting advisory firms).

The final rules codify the SEC’s view that proxy voting advice generally constitutes a solicitation under the proxy rules. The SEC Press Release clarifies that the availability of two exemptions often used by proxy voting advice businesses to the proxy rules depends on compliance with tailored and comprehensive conflicts of interest disclosure requirements. The exemptions also require compliance with two principles-based requirements designed to ensure that:

(1) companies that are the subject of proxy voting advice have such advice made available to them in a timely manner, and

(2) clients of proxy voting advice businesses are provided with an efficient and timely means of becoming aware of any written responses by companies to such proxy voting advice.

ISS, GL and CII Comment Letters on the SEC’s Proposed Amendments to Rules for Proxy Voting Advice

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Last November, the SEC issued a proposed interpretation and guidance on how it would apply the proxy rule exemptions to proxy advisors regarding their provision of proxy voting advice. The exemptions would still exist, but would require proxy advisors to meet certain new conditions. (see Exequity’s November 12, 2019 Client Alert, SEC Proposed Changes to Rues Impacting Proxy Advisors and Shareholder Proposals, for details).

ISS first sued the SEC to block the rule changes and the SEC agreed to what amounts to a stand-still arrangement on the lawsuit for 1 year. Now, the two largest proxy advisors, ISS and Glass Lewis, recently submitted comments letters to the SEC regarding the SEC’s proposals. Finally, the Council of Institutional Investors (CII) has also submitted a comment letter to the SEC on its proposal.

ISS’ comment letter is 89 pages and raises three main issues:

  • Definitional—ISS argues that the SEC lacks the authority to regulate proxy voting advice as if it were a solicitation.
  • Exemptive—ISS argues that the proposed amendment of exemptions would require a proxy advisor to give the subject of its voting advice the right to review and provide feedback, and if the subject company is not happy with the proxy advisors attempt to satisfy any deficiencies, could force the proxy advisor to include a hyperlink directing the recipient of the proxy advisor’s advice to the subject company’s views on such advice.
  • Litigation risk—ISS argues that the proposed guidance would require proxy advisors to provide granular disclosure concerning their proxy voting advice, which ISS alleges has no legal basis and was not authorized by Congress.

Glass Lewis’ comments focused on its belief that the proposed interpretation and guidance would not further the SEC’s stated objectives. Glass Lewis also points out that it believes the rushed process to develop this SEC proposal failed to provide adequate time to consider the legal issues its novel approach would raise and to understand fully and analyze the consequences—economic and otherwise—of the untested, unprecedented regulatory regime it would introduce.

CII’s letter also indicates that it is not a fan of the proposal. CII’s letter focused on claims by certain corporate representatives that there are pervasive factual inaccuracies in proxy advisors’ reports, claims that it believes the SEC relied on in taking this action. CII believes that the claims of pervasive errors are unfounded and misleading and do not provide a basis for the SEC’s rulemaking.

The comment letters of CII, ISS and Glass Lewis are available at:

SEC Issues Proxy and Investment Adviser Guidance

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On August 21, 2019, the SEC issued two sets of guidance: (1) for proxy advisors, stating that the proxy rules apply to the provision of proxy voting advice, and (2) for investment advisers, regarding their proxy voting responsibilities.

This guidance could significantly change the proxy voting landscape and impact voting process at public companies. I provide my observations about these potential impacts and summaries of the SEC guidance in this Exequity Client Alert.

New Video Podcast!

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I am happy to announce that on May 2, 2018, my new video podcast, The EC Minute, launched.  The first three episodes are all live now. New episodes will be posted weekly. You can see the video podcast episodes at:

The EC Minute

The first three episodes take a look at Say-on-Pay, with a focus on S&P 500 companies.

 

If you have an idea or suggestion for a topic for The EC Minute, just let me know by using my contact form:

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